Basically, Joel covers a whole bunch of ground in this article, including issues like why it's not in Microsoft's best interest to support DHTML and advance Internet Explorer (which actually explains a WHOLE LOT!), and the basic problem around Windows - including why he thinks Avalon / Longhorn is a mistake...you really have to read it, as usual it's a measured approach and very thought provoking!
My opinion (as if you care :-)), it's tricky territory for Microsoft, as Joel points out, the Web is probably never going to be a big earner for Microsoft; desktop apps like Office etc require separate licenses (and these are now REALLY enforced) web applications typically don't.
One thing I do think is interesting is the development of rich WebUIs using tools like Flash (take a look at this for a brilliant example of what I mean) - click-once in Whidbey also seeks to exploit this model by allowing users to retain rich UIs whilst also ensuring (enforcing?) realtime updates from the web; I also think that pay-for-use software may just make a comeback...